Chapter 10 INTERNATIONAL TRADE - BST class 11th

India

Nepal

Nepal

India

India

Bangladesh

Bangla desh

India

India

USA

India

China

India

UAE

India

Saudi Arabia

1

Benefits to Nations

2

Benefits to Business Firms

1  E

Earning of foreign exchange

2  M

More efficient use of resources

3  I

Improving growth prospects and employment potentials:

4 Increased

Increased standard of living

1  E

Earning of foreign exchange:

International business helps a country to earn foreign exchange which can be used for payment for imports of capital goods, technology, petroleum products, fertilisers, pharmaceutical products, etc.

2   M

More efficient use of resources:

Every country produces select goods and services which it can produce most effectively and efficiently. Gradually, it attains specialisation in the production of these goods and services, leading to efficient utilisation of resources.

3  I

Improving growth prospects and employment potentials:

Take Example of Japan. South Korea and China

Producing solely for the purposes of domestic consumption severely restricts a country's prospects for growth and employment. Many countries, especially the developing ones, could not execute their plans to produce on a larger scale, and thus create employment for people because their domestic market was not large enough to absorb all that extra production. Later on a few countries such as Singapore, South Korea and China which saw markets for their products in the foreign countries embarked upon the strategy 'export and flourish', and soon became the star performers on the world map. This helped them not only in improving their growth prospects, but also created opportunities for employment of people living in these countries.

4  Increased

Increased standard of living:

In the absence of international trade of goods and services, it would not have been possible for the world community to consume goods and services produced in other countries that the people in these countries are able to consume and enjoy a higher standard of living.

1 W

Way out to intense competition in domestic market

2 I

Increased capacity utilization

3 I

Improved business vision

4 P

Prospects for higher profits

5 P

Prospects for growth

1 W

Way out to intense competition in domestic market:

Highly competitive domestic market drives many companies to go international in search of markets for their products.

2 I

Increased capacity utilisation:

By procuring export orders, a firm can make use of its surplus production capacity. Production on large-scale leads to economies of scale which, in turn, lowers the cost of production.

3 I

Improved business vision

The growth of international business of many companies (e.g., Pepsi Samsung, Hindustan Unilever Ltd., etc.) is essentially a part of their business policies to become more competitive and to diversify.

4 P

Prospects for higher profits:

International business can be more profitable than the domestic business. When the domestic prices are lower, business firms can earn more profits by selling their products in the international markets where prices are high.

5 P

Prospects for growth:

When demand of a firm's products starts getting saturated in the domestic market, the firm has to search overseas markets for improving its growth prospects.

1

Receipt of enquiry and sending quotations: Proforma invoice Exporter -Seth Girdhari lal & Co                  

2

Receipt of order or indent:  Importer Trump & company.                                                       

3

Assessing importer's credit-worthiness and securing a guarantee for payments:  Importer                                                                    

4

Obtaining export license:  From DGFT. IEC

5

Obtaining pre-shipment finance - FROM COMMERCIAL BANK

6

Production or procurement of goods: By Exporter

7

Pre-shipment inspection:  by   Export Inspection Council of India

8

Excise clearance or GST Clearance: CUSTOM DEPERMENT Central Board of Indirect Taxes and Customs Liquor , cigrate , petrol , rest is gst

9

Obtaining certificate of origin:  Through chambers of commerce

10

Reservation of shipping space: Shiping company -Mediterranean Shipping Company (MSC                                                            

11

Packing and forwarding: INHOUSE , BOX , AGGARWAL PACKERS - 

12

Insurance of goods:                                                 

13

Customs clearance:                                               

14

Obtaining mate's receipt: (CLASS MATE OR ROOM MATE)                                           

15

Payment of freight and issuance of bill of lading: to shiping company or air lines  FEDEX AIR COMPANY

16

Preparation of invoice: Seth Girdhari lal & Co                   

17

Securing payment: Seth Girdhari lal & Co

1

Receipt of enquiry and sending quotations:

Proforma invoice

                            Exporter

Seth Girdhari lal and Co

Exporter sends  his requirements and  quality, grade, size, weight etc.

The prospective buyer (i.e., importing firm) of a product sends an enquiry to different exporters requesting them to send information regarding price, quality and terms and conditions for export of goods. The exporter sends a reply to the enquiry in the form of a quotation (called proforma invoice), which contains information about the price at which the exporter is ready to sell the goods and also provides information about the quality, grade, size, weight, mode of delivery, type of packing and payment terms.

2

Receipt of order or indent:                                                           Importer

Donald Trump and company .                                                      

In case the prospective buyer finds the export price and other terms and conditions acceptable, it places an order (known as indent) for the goods to be dispatched. This order contains a description of the goods ordered, prices to be paid, delivery terms, packing and marking details and delivery instructions

3

Assessing importer's credit-worthiness and securing a guarantee for payments:                                                                                    Importer

Assessing importer's credit-worthiness and securing a guarantee for payments: After receipt of the indent, the Exporter makes necessary enquiry about the creditworthiness of the importer to assess the risks of non-payment by the importer once the goods reach the import destination. To minimise such risks, most exporters demand a letter of credit from the importer. A letter of credit is a guarantee issued by the importer's bank that it will honour payment up to a certain amount of export bills to the bank of the exporter

4

Obtaining export license:                                             From  DGFT. IEC

The export firm must have an export license before it proceeds with exports.

important steps or prerequisites for getting an export license are as follows:

(i) Opening a bank account: The export firm must open a bank account in any bank authorized by the Reserve Bank of India (RBI) and has to get an account number.

(ii) Obtaining Import Export Code (IEC) number: The export firm needs to have the Import Export Code IEC number as it has to be filled in various export or import documents. For obtaining the IEC number, a firm has to apply to the Director General for foreign Trade (DGFT) or Regional Import Export Licensing Authority with documents such as :

(iii) Registering with the appropriate export promotion council: It is obligatory for every exporter to get registered with the appropriate export promotion council, become its member and obtain a Registration-cum-Membership Certificate (RCMC) for availing benefits available to export firms

 The Government of India have set up Various export promotion councils to  develop exports of different categories of products

such as   .

(iv) Registering with Export Credit and Guarantee Corporation (ECGC):

Payment ko secured karne ke liye hain

Registration with the ECGC is necessary in order to safeguard against risks of non-payments. Such a registration also helps the export firm in getting financial assistance from commercial banks and other financial institutions.

5

Obtaining pre-shipment finance               FROM COMMERCIAL BANK

The exporter approaches his banker for obtaining pre- shipment finance to undertake export production. Pre-shipment finance is the finance that the exporter needs for procuring raw materials and other components, processing and packing of goods and transportation of goods to the port of shipment.

6

Production or procurement of goods:                           IMPORTER

 After obtaining the pre-shipment finance from the bank, the exporter either produces the goods as per the specifications of the importer or procures them from the market.

7

Pre-shipment inspection:             Export Inspection Council of India

The government has passed Export Quality Control and Inspection Act, 1963 to ensure that only good quality products are exported from the country. For this purpose, it has authorised some agencies to act as inspection agencies.  Export Inspection Council of India (EIC) is one such agency which carries out such inspections and issues the Certificate of Inspection' after satisfying the conditions relating to quality and export-worthiness of the goods. The exporter needs to contact the Export Inspection Agency (EIA) for inspection of the export goods and obtaining inspection certificate, which has to be submitted along with other export documents at the time of exports.

For the following exporting firms, pre-shipment inspection is not compulsory :

8

Excise clearance:                                               CUSTOM DEPERMENT

 Central Board of Indirect Taxes and Customs

GST is payable on the materials used In manufacturing goods. The exporter has to apply to the concerned Excise Commissioner in the region with an invoice. If the Excise Commissioner is satisfied, he may issue the excise clearance.

However, in many cases the government exempts payment of excise duty or later on refunds it if the goods so manufactured are meant for exports. The refund of excise duty is known as duty drawback. 

The main purpose of such exemption or refund is to provide an incentive to the exporters to export more and also to make the export products more competitive in the world markets.

9

Obtaining certificate of origin:

Certificate of Origin is issued by the Indian Chamber of Commerce (Indian Chamber of Commerce 4, India Exchange Place, Kolkata-

as well as Trade Promotion Council of India  (Trade Promotion Council of India 9, 2nd Floor, Scindia House
Connaught Circus)

This certificate issued by these two bodies is essential for exporters in India to prove that the commodities being exported are of Indian origin.

certificate of origin is a certificate which specifies the country in which the goods are being produced.

This certificate entitles the importer to claim tariff concessions or other exemptions in his county.

This certificate is also required when there is a ban on imports of certain goods from select countries.

The goods are allowed to be brought into the importing country if these are not originating from the banned countries.

10

Reservation of shipping space:                                    Shipping company

The exporting firm applies to the shipping space. It has to specify the types of goods to be exported, probable date of shipment and the port of destination.

on acceptance or the application for shipping, the shipping company issues a Shipping order. Shipping order  is an instruction to the captain  of the ship that specified goods, after their customs clearance at a designated port, be received on board.

11

Packing and forwarding: 

INHOUSE , BOX , AGGARWAL PACKERS - 

 Packing and: forwarding: Packing list is a statement of the number of cases or packs and the details of the goods contained in these packs.

It gives details of the nature of goods which are being exported and the form in which these are being sent.

The goods are properly packed and marked with necessary details such as:

The exporter then makes necessary arrangement for transportation of goods to the port.

On loading goods into the railway wagon, the railway authorities issue a railway receipt which serves as a title to the goods.

The exporter endorses the railway receipt in favour of his agent to enable him to take delivery of goods at the port of shipment.

12

Insurance of goods:                                                 

. Insurance of goods: The exporter then gets the goods insured with an insurance company to protect against the risks of loss or damage of the goods due to the perils of the sea during the transit.

13

Customs clearance: 

The goods must be cleared from the customs before these can be loaded on the ship.

Process of customs clearance of export goods:

Preparation of shipping bill:

The exporter prepares the shipping bill. Shipping bill is the main document on the basis of which the customs office gives the permission for export. Shipping bill contains the following details:

Submission of bill :

Five copies of the shipping bill along with the following documents have to be submitted to the

(iii) obtaining the carting order:

After submission of these documents, the Superintendent of the concerned port trust is approached for obtaining the carting order. Carting order is the instruction to the staff at the gate of the port to permit the entry of the cargo inside the dock.

(iv) Appointment of Clearing and Forwarding (C&F) agent:

After obtaining the carting order, the cargo is physically moved into the port area and stored in the appropriate shed.

Since the exporter cannot make himself or herself available all the time for performing all these formalities these tasks are entrusted to an agent-referred to as Clearing and Forwarding (C&F) agent.

14

Obtaining mate's receipt:

 The goods are then loaded on board the ship. The mate or the captain of the ship issues mate's receipt to the port superintendent. A mate receipt is a receipt issued by the commanding officer of the ship when the cargo is loaded on board.

It contains the following information:

The port superintendent, on receipt of port dues, hands over the mate's receipt to the C&F agent.

15

Payment of freight and issuance of bill of lading: to shipping company or air lines  

( The bill of lading is issued by shipping company)

The C&F agent surrenders the mate's receipt to the shipping company for computation of freight. After receipt of the freight, the shipping company issues a bill of lading. Bill of lading is a document which serves as an evidence that the shipping company has accepted the goods for carrying to the designated destination.

Airway Bill: Like a bill of lading, an airway bills a document wherein an airline company gives its official receipt of the goods on board its aircraft and the same document gives title to the goods which as such is freely transferable by the endorsement for delivery.

16

Preparation of invoice:   

16. Preparation of invoice: After sending the goods, the exporter prepares an invoice of the despatched goods. The invoice states the quantity of goods sent and the amount to be paid by the importer.

The C&F agent gets it duly attested by the customs

17

Securing payment:  

17. Securing payment: After the shipment of goods, the exporter informs the importer about the shipment of goods. The importer needs various documents to claim the title of goods on their arrival at his country and getting them customs cleared, such as:

The exporter sends these documents through his banker with the instruction that these may be delivered to the importer after acceptance of the bill of exchange. Bill of exchange is drawn by exporter on the importer asking him to pay a certain amount to a certain person or the bearer of the bill of exchange.

Bill of exchange can be of two types:

Document against sight (sight draft): In case of sight draft, the documents are handed over to the importer only against payment, the moment the importer agrees to sign the sight draft, the relevant documents are delivered.

Document against acceptance (usance draft): In the case of usance draft, the documents are delivered to the importer against his or her acceptance of the bill of exchange for making payment at the end of a specified period, say, three months.

On receiving the bill of exchange, the importer releases the payment in case of sight draft or accepts the usance draft for making payment on maturity of the bill of exchange. The exporter's bank receives he payment through the importer's bank and is credited to the exporter's account The exporter, however, need not wait for the payment till the release of money by the importer. The exporter can get immediate payment from his/ her bank on the submission of documents by signing a letter of indemnity. Letter of indemnity is a letter by which the exporter undertakes to indemnify the bank in the event of non-receipt of payment from the importer along with accrued interest.

 Having received the payment for exports, the exporter needs to get a bank certificate of payment. Bank certificate of payment is a certificate which says that necessary documents (including bill of exchange) relating to the particular export consignment has been negotiated (i.e., presented to the importer for payment) and the payment has been received in accordance with the exchange control regulations.

1 T

Trade enquiry-Refer to class 3 . exactly same

2 P

Procurement of import license and obtaining an IEC number – Refer to class 3

3 O

Obtaining foreign exchange:

4 P

Placing order or indent: Refer to class 3

5 O

Obtaining letter of credit: Refer e to class

6 A

Arranging for finance:

7 R

Receipt of shipment advice:

8              R

Retirement of import documents:

9      A

Arrival of goods:

10    C

Customs clearance and release of goods:

1 T

Trade enquiry:

The importing firm gathers information about the countries and the exporting firms from the trade directories and/or trade associations and organisations. Then, importing firm approaches the exporting firms with the help of a trade enquiry. A trade enquiry is a written request by an importing firm to the exporter for supply of information regarding the price and various terms and conditions of export of goods.

After receiving a trade enquiry, the exporter prepares a quotation and sends it to the importer. The quotation is known as proforma invoice (already discussed).

2 P

Procurement of import license and obtaining an IEC number:

In case goods can be imported only against the license, the importer needs to procure an import license. In India, it is obligatory for every importer to get registered with the Directorate General Foreign Trade (DGFT) or Regional import Export Licensing Authority, and obtain an Import Export Code (lEC) number. This number is required to be mentioned on most of the import documents.

3 O

Obtaining foreign exchange:

The overseas supplier demands Payment in foreign currency. Payment in foreign currency involves exchange of Indian currency into foreign currency. In India, all foreign exchange transactions are regulated by the Exchange Control Department of the Reserve Bank of India (RBI). The importer is required to secure the sanction of foreign exchange. For obtaining such a sanction, he has to make an application (in a prescribed form along with the import license) to a bank authorized by the RBI to issue foreign exchange.

After proper scrutiny of the application, the bank sanctions the necessary foreign exchange for the import transaction.

4 P

Placing order or indent:

The importer places an import order or indent (already discussed)

5 O

Obtaining letter of credit:

The importer should obtain the letter of credit from  his bank and forward it to the overseas supplier  (already discussed)

6 A

Arranging for finance:

The importer makes arrangements of finance in advance  to pay to the exporter on arrival of goods at the port. Advanced planning for financing imports is necessary to avoid huge demurrages (i.e., penalties) on the imported goods lying uncleared at the port for the payments

7 R

Receipt of shipment advice:

After loading the goods on the ship, the Overseas dispatches shipment advice to the importer. A shipment advice contains information about the shipment of goods such as:

8                R

Retirement of import documents:

Having shipped the goods, the overseas supplier prepares a  set of necessary documents (bill of exchange, commercial invoice, bill of lading/airway bill, packing list, certificate of origin, marine insurance policy, etc.) and hands it over to his banker for their onward transmission and negotiation to the importer.

The bill of exchange accompanying the above documents is known as the documentary bill of exchange, which can be of two types-sight draft and usance draft (already discussed).

The acceptance of bill of exchange for the purpose of getting delivery of the documents is known as retirement of import documents. Once the retirement is over, the bank hands over the import document to the importer.

9      A

Arrival of goods:

Goods are shipped by the overseas supplier as per the contract. The person in  charge of the ship/airway informs the officer in charge at the dock/airport about the arrival of goods in the importing country. He provides the document called import general manifest. Import general is a document that contains the details of the imported goods. It is a document on the basis of which uploading of cargo takes place.

10    C

Customs clearance and release of goods:

All the goods imported into India have to Pass through customs clearance after they cross the Indian borders. When the ship arrives at the port the importer has to obtain a delivery order/endorsement for delivery on the back of the bill of lading from the concerned shipping company. This order entitles the importer to take the possession of the goods after payment of the freight charges (if these have not been paid by the exporter).

The 'Landing and Shipping Dues Office' levies a charge for services of dock authorities (called dock charges). The importer has to pay dock charges and obtain port trust dues receipt. For this, he has to submit two copies of a duly filled form, called 'application to import'. After payment of dock charges, the importer is given back one copy of the application as a receipt. This receipt is known as port trust dues receipt.

 1

Indent-   Refer to Class 3

 2

Letter of Credit- Refer to class 3

 3

Shipping Order-

 4

Shipping Bills-

 5

Mate's Receipt- Refer to class 3

I

Indent:

It is a document for placing an export or import order, which contains a description of the goods ordered, prices to be paid, delivery terms, packing and marking details and delivery instructions.

 L

Letter of Credit:

A letter of credit is a guarantee issued by the importer's bank that it will honour payment up to a certain amount of export bills to the bank of the exporter. It is necessary to minimize the risks of non-payment by the importer once the goods reach the import destination.

 S

Shipping Order:

The exporting firm applies to the shipping company for provision of the shipping space. On acceptance of the application for shipping, the shipping company issues a shipping order.

A shipping order is an instruction to the captain of the ship that the specified goods, after their customs clearance at a designated port, be received on board.

 S

Shipping Bills:

Before the goods can be loaded on the ship, customs clearance is necessary. For this, the exporter prepares the shipping bill.

Shipping bill is the main document on the basis of which the customs office gives the permission for export. Shipping bill contains the details of the exporter's name and address, particulars of the goods being exported, name of the vessel, port at which goods are to be discharged and the country of final destination.

Mate's Receipt:

 A mate's receipt is a receipt issued by the captain/ commanding officer of the ship (called 'mate') when the cargo (i.e., the goods) is loaded on the ship. It is a prima facie evidence that goods are loaded on board. Mate's receipt is first handed over to the port superintendent. The port superintendent, on receipts of port dues, hands over the mate's receipts to the Clearing and forwarding  agent (C & F agent) appointed by the exporter.]

Mate's receipt is an important document because the title document of goods (i.e., bill of lading) is Prepared on the basis of the mate's receipt.

1

Clean Mate's Receipt:

2

Qualified Mate's Receipt:

1

Clean Mate's Receipt:

The commanding officer of the ship issues a clean mate's receipt, if he is satisfied that goods are packed properly and there 1s no defect in the packing of the cargo.

2

Qualified Mate's Receipt:

A qualified mate's receipt is issued when the commanding officer of officer of the ship is not satisfied with the packing of the goods, and the shipping company does not take any responsibility of damage in transit.